INSTITUTE OF LAW, JIWAJI UNIVERSITY, GWALIOR

COURSE - B.COM. LL.B. FIVE YEAR

SEMESTER – VI
SUBJECT - INTERNATIONAL MARKETING
UNIT-3 -TOPIC-PRICING PROCESS AND FACTORS AFFECTING
INTERNATIONAL PRICING DECISIONS

BY AJAY JAIN
PRICING PROCESS

Experienced global marketers view price as a major strategic variable that

can help achieve business objectives. But there is no set formula for
successful pricing in international marketing. Pricing decisions including price
setting and price quotation in different markets involve a series of
quantitative exercises in respect of the cost of the product and foreign
market analysis.

Cost and sales forecast enable the exporter arrive at the floor price.
The ceiling is determined by demand factors as well as competition.
Between these two points, price .set according to perception,
judgement, intuition and experiences of the international marketer.
STEPS INVOLVED IN EXPORT
PRICING PROCEDURE
The main steps involved in export pricing procedure are:
1 Cost Analysis
a) Cast of product
b) Cost of distribution
c) Cost of marketing support.

2 Market Analysis with a view to ascertaining:

a) Market size and segment relevant to the product
b) Rice levels and price categories in respect of the product .
C) Competition
3 Determination of Price Limits within which the price is to be set according to
experience and judgement of the exporter.
a) Lower limits i.e. cost limits
b) Upper limits i.e. market limits
4 Determination of Pricing Objectives in the light of which the price is to be set
within the two limits.
5 Calculation of Price Structure
6 Rice Quotation and Terms
 FACTORS AFFECTING
INTERNATIONAL PRICING
DECISIONS
The marketers have to take into account several factors while fixing
prices globally. Some of them are as follows:

a) Production cost: The manufacturer will not sell goods below the
production cost. The production cost is further divided into variable cost
and total cost. Cost of production differs from country to country. Prices
must cover production costs, hence, may vary from country to country. If
the manufacturer’s price can be lowered, the effect is felt throughout the
chain.
(b) Distribution cost: Distribution cost involves costs of taking products from
factory to the place of consumers. Prices depend on channel length,
marketing patterns, middlemen’s margins and mark-ups. The marketer also
incur added expenses for warehousing and handling of small shipments,
and may have to bear increased financing costs when dealing with
underfinanced middlemen.

Exporting also incurs increased transportation costs when moving goods

from one country to another. If the goods go over water, there are
additional costs for insurance, packing, and handling not generally added
to locally produced goods. Such costs add yet another burden because
import tariffs in many countries are based on the landed cost that includes
transportation, insurance, and shipping charges.
(c) Taxes & Tariffs: The manufacturer & exporter will add the amount of
taxes & tariffs to the prices to recoup them from the consumers. If taxes
& tariffs are not taken back from the customers, the profits of
manufacturer & exporter would decline. A tariff, or duty, is a special form
of taxation. Like other forms of taxes, a tariff may be levied for the
purpose of protecting a market or for increasing government revenue. A
tariff is a fee charged when goods are brought into a country from
another country.

(d) Inflation: The effect of inflation on cost must be taken

into account. In the countries with rapid inflation or exchange
variation, the selling price must be related to the cost of goods sold
and the cost of replacing the items. Marketers have to protect
themselves against the inflation. When the payment is likely to be
delayed for several months or is worked out on a long-term contract,
inflationary factors must be figured into prices. Every exporter must
try to charge inflation amount to prices.
(e) Exchange rate fluctuations: The exporters face
fluctuations in exchange rate of various currencies. If the currency
rate is stable, the payment would be easy and problem free but the
fluctuating atmosphere makes it difficult to decide how much
money and at what time would be received by exporters.

At one time, world trade contracts could be easily written

and payment was specified in a relatively stable currency. The US
dollar was the standard and all transactions could be related to the
dollar. Now that all major currencies are floating freely relative to
one another, no one is quite sure of the future value of any
currency.
(f)Demand & Supply: The demand and supply are instrumental to the
determination of the prices. Demand and supply conditions set the
prices in a country. If the demand is more and supply is less then the
company can afford to charge higher prices otherwise not. Similarly
demand potential and demand elasticities both play critical roles. Price
elasticity is most pronounced in low income countries, where people pay
close attention to prices. If prices are high, they buy less, and if prices are
low, they buy more.
(g) Competition: Competition is important factor to influence the pricing.
The behaviour of competitors’ puts severe constraints on the operating
margins and ultimately the prices. More the number of competitors less
price a company may be able to charge and vice versa.
Some price competition is indirect, meaning that price competition
occurs between the product and its close substitutes. For example, many
carmakers compete indirectly with public transport systems.

Non-price competition occurs in many markets. In developed

countries, non-price competition takes on a promotional orientation
with emphases on better advertising, improved design, and good
service more than on price. In developing countries, non-price
competition frequently takes the form of appeals of local pride and
patriotism.
(h) Free Trade Zones: Some countries have established free trade zones
(FTZs) or free ports to facilitate international trade. Price escalations
resulting from the layers of taxes, duties, surcharges, freight charges,
and so forth, can to some extent be controlled by utilizing FTZs. The
benefits of free trade zones permit many of these added charges to
be avoided, reduced, or deferred and the final price becomes
competitive. One of the more important benefits of the FTZ in
controlling prices is the exemption from duties on labour and overhead
costs incurred in the FTZ in assessing the value of goods.

(i) Leasing: An important manufacturing and selling

technique to alleviate high prices and capital shortages for capital
equipment in the leasing system. The concept of equipment leasing
has become increasingly important as means of selling capital
equipment in overseas markets.
(k) Long range commitment: A firm may be internationalised temporarily
or permanently, and this decision affects its pricing behaviour. Some
enter international markets on a short-term basis because they have
surpluses that can be sold or excess capacities that can be utilised by
expanding into these international markets. These firms generally price
low in order to sell the maximum in minimum time. Once the surplus is
depleted or domestic markets recover or expand sufficiently to absorb
he excess capacity, the company withdraws from international markets.
THANK YOU